COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 20 Feb 2003

Vol. 1 No. 9

National Roads Authority - Annual Financial Statement 2001.

Mr. John Murphy (Assistant Secretary, Department of Transport) and Mr. Michael Tobin (Chief Executive, National Roads Authority) called and examined.

Chairman

I apologise for the delay due to an exceptional item requiring consideration in private session.

Witnesses should be made aware that they do not enjoy absolute privilege and should be apprised as follows. Witnesses' attention is drawn to the fact that from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons who are identified in the course of the committee's proceedings. These rights include the right to give evidence, the right to produce or send documents to the committee, the right to appear before the committee either in person or through a representative, the right to make a written or oral submission, the right to request the committee to direct the attendance of witnesses and the production of documents, and the right to cross-examine witnesses. For the most part, these rights may be exercised only with the consent of the committee. Persons being invited before the committee are made aware of these rights and any person identified in the course of proceedings who are not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interest of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions within Standing Order 156 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister in the Government or the merits of the objectives of such policies.

I welcome everybody attending and invite Mr. Michael Tobin, Chief Executive of the National Roads Authority, to introduce his colleagues.

Mr. Michael Tobin

Thank you, Chairman. On my right are Mr. Gerry Murphy, our PPP manager and Mr. Michael Egan, head of corporate affairs. On my left are Mr. Eugene O'Connor, head of project management and engineering, and Mr. John Maher, the NRA accountant and head of support services.

Chairman

I ask Mr. John Murphy to introduce the delegation from the Department of Transport.

Mr. John Murphy

I am assistant secretary in the Department of Transport in charge of the roads division. With me is Mr. Peter McEvoy, principal in the roads policy area.

Chairman

I welcome Mr. Michael Manley from the Department of Finance. I ask Mr.Purcell to introduce the accounts.

Mr. Purcell

The annual financial statements of the National Roads Authority are presented in the form of two income and expenditure accounts - one for its funding of the national roads programme and the other covering its administration costs - together with a balance sheet. As my audit report states, the account gives a true and fair view of the final transactions of the authority for 2001 and the state of affairs at year end.

The committee will note that I have made reference in the audit report to the implications of financial reporting standard No. 17 for the accounts. This is a new standard dealing with pension costs. Most State-sponsored bodies have had difficulty complying with this standard in 2001 and the National Roads Authority is no different in that respect. It is almost a technical issue and I do not know if the committee would be particularly interested in that aspect of the authority's activities.

There are also broader issues such as accounting for road infrastructure assets and public private partnerships. These will have to be considered sooner rather than later and this is something that would have been the subject of correspondence with the authority.

Apart from the audit of the accounts, I have since the beginning of the year devoted staff resources to examining the reasons for the escalation in the costs of the national roads programme with a view to issuing a special report on the matter. That work is ongoing so I am not in a position to pinpoint this information for the committee. I would expect, however, to complete this work in two to three months time.

I notice that Mr. Tobin, in his submission, refers to some of the underlying factors. I would see my work as being to independently validate those representations in the report, which should come before the committee later this year.

Chairman

I ask Mr. Tobin to make a brief opening statement.

Mr. Tobin

I welcome this opportunity to deal with the authority's accounts for 2001 and to outline key activities in that year, as well as bringing the committee up to date on the current status of the national roads programme. The authority faced considerable challenges coming into 2000 in gearing up for the scale of the roads programme envisaged in the National Development Plan, 2000-2006. Specifically, the NDP set the authority the task of improving five major interurban routes between Dublin and Cork, Galway, Limerick, Waterford and the M1 to the border with Northern Ireland to motorway or high quality dual carriageway standard. The programme also caters for significant activity on the improvement of a great many other national primary roads and a lesser number of national secondary roads throughout the country. The level of service to be achieved on the routes concerned will help ensure that difficulties of access no longer inhibit the attraction of investment and employment opportunities to all parts of the country.

The authority, in conjunction with local authorities, reviewed its procedures and practices and established 11 national regional road design offices to manage the planning and statutory procedures to be followed in advancing national road scheme proposals. As part of this process, revised procedures were adopted which have the potential to reduce the time typically required to progress schemes from initial planning to construction to three and a half years compared with in excess of five years previously.

Our response to the ambitious programme set out in the NDP also involved the allocation of substantial resources to planning and design work. Some €51 million was spent on such work during 2000, an increase of 170% on the previous year's expenditure, for the purpose of gearing up to meet the NDP objectives. We have maintained a high level of funding for the planning effort each year since, including almost €150 million this year.

I am pleased to be able to report that good progress was maintained in 2001 on the implementation of the national roads programme. Exchequer funding for improvement and maintenance works totalled €958.65 million in that year, an increase of over €300 million, or 46%, on the previous year. Significant developments during the year included the completion of the planning and consultation process leading to the identification of the preferred route corridors for all five major interurban routes, and the completion of 14 projects accounting for 106 kilometres of new or improved roads, including almost 44 kilometres of dual carriageway and motorway.

The projects concerned included the M1 Dunleer-Dundalk motorway, the M1-N2 Dunleer to Ardee link road, which is of strategic significance in catering for Donegal-Dublin traffic, the N15 Clar-Barnesmore road and the N56 Mountcharles bypass, both in County Donegal, the N20 Croom bypass, the N20-N21 Adare to Limerick project, the N21 from Ballycarthy to Killally, County Kerry, the N25 Kilmacthomas bypass in County Waterford and the M50 southern cross route.

In addition, work commenced on 13 projects including the south-eastern motorway, which is the final section of the M50, the Dublin Port tunnel, the N5 from Strokestown-Longford, the N7 Limerick southern ring road, phase one, the N18 Hurlers Cross project, the N19 Shannon access road, the N17 Knock-Claremorris road, phase two, and the N25 Youghal bypass.

The authority, in conjunction with local authorities, suspended farm visits and related planning work early in 2001 in support of the national effort to prevent the spread of foot and mouth disease. It was possible to resume such visits after eight to ten weeks on the basis of protocols approved by the Department of Agriculture, Food and Rural Development concerning disinfectant and comprehensive access precautions. The situation caused small but manageable and recoverable delays to the timetables for some projects.

Of more significance, however, was the refusal of the IFA to allow access to land for site investigation and environmental impact assessment work during the second half of 2001, as part of a campaign to secure changes in the application of compulsory purchase order legislation and increased compensation payments. This had the effect of delaying over 30 projects by between six and 12 months. A welcome resolution to the IFA dispute was secured in December 2001.

The €1.135 billion funding available to the authority in 2002 sustained an unprecedented level of road construction activity. At the start of that year, 201 kilometres of road were under construction, including almost 130 kilometres of motorway and dual carriageway. Many of the schemes involved will be completed this year. The authority also initiated a special programme for national secondary roads aimed at ensuring a quality road pavement and protecting the structural integrity of the network. The funding commitments for these schemes and activities, together with the on-going implementation of the authority's road safety programme in support of the Government's road safety strategy, meant that the authority was not in a position to allow additional schemes to go to construction during 2002.

While dealing with road safety measures, I should point out that the 900 kilometres of motorways and dual carriageways planned for construction under the NDP will be intrinsically safer than the sections of national road they will replace. When constructed, these roads have the potential to reduce road accident fatalities by over 50 persons annually.

The authority welcomes the significant reduction in road accident fatalities recorded in 2002 and, while it is clear that the introduction of the penalty points system was a major contributory factor in that reduction, the authority has assisted in some way in the process of reducing road fatalities. Over the course of the road to safety strategy, 1998-2002, the authority completed remedial works at 418 high risk accident locations - 18 more than the strategy's target - and developed and implemented safety audit procedures in respect of scheme design and construction. It also conducted surveys on speeds and seat-belt wearing to better inform the work of the high level group on road safety.

Last week, the authority announced details of allocations to local authorities for 2003 based on the record Exchequer provision of €1.263 billion, an increase of 11.4% on the expenditure outturn in 2002. This level of funding represents a major boost for the construction industry with the planned commencement of at least seven national road schemes this year. The schemes, which have a combined estimated cost of €1.138 billion, are the N1 Dundalk western bypass, the N2 Carrickmacross bypass, the N4 Kilcock-Kinnegad bypass, the N7 Monasterevin bypass, the N7 Kingswood interchange, which ties into an outer ring road being constructed along the Naas road, the N8 Cashel bypass and the N25 Waterford city bypass.

The number of schemes proceeding to construction may increase further, depending on the roads programme's overall rate of progress and financial commitments arising during the year. Priority schemes in this regard are the N4 between Hughestown and Meera and the N26 at Carrowntreila, between Ballina and Bohola. The tender process for these two schemes is to commence immediately.

In determining scheme allocations, the NRA has taken account of the objectives of the national development plan and the Minister for Transport's request to prioritise schemes on the major interurban routes, PPP schemes and schemes in the BMW region. The current imbalance in expenditure in favour of the southern and eastern region reflects the scheme content of the roads programme on publication of the NDP in November 1999 and the time required to advance schemes through planning and statutory approval processes. The authority is actively taking steps to redress the situation and these efforts are producing results through the advancement of BMW region schemes such as the N1 Dundalk western bypass, the N2 Carrickmacross bypass, the N4 scheme between Boyle and Carrick-on-Shannon, the N4 scheme between Kilcock and Kinnegad, the M7 Monasterevin bypass and the N26 scheme between Ballina and Bohola. This year's allocations make significant provision for property acquisition payments in respect of schemes which have secured the necessary statutory approvals. Funding is also being made available for advance archaeological work on schemes such as the N18 Ennis bypass and the N4 Sligo inner relief road. The archaeological aspects of these schemes will be resolved in accordance with best practice, clearing the way for tendering for road construction to proceed.

Almost €150 million is being allocated for projects at planning and design stage. This will make it possible to make statutory orders and to complete environmental impact statements for schemes, as well as advancing other schemes through various stages of planning. Design and planning work for major schemes on national secondary routes, including compensation payments for land for schemes which have obtained compulsory purchase order approvals, will benefit from the provision of €12.44 million. The NRA plans to spend €69 million this year on road pavement improvements. This work is intended to maintain the road network in good structural order, taking account of the higher axle loads permitted in recent years, and to provide safe and comfortable driving conditions. Expenditure will be targeted using road condition survey data and will have regard to the timetable for construction of new sections of road. Some €43.2 million of the overall pavement provision will be allocated to a five-year pavement restoration programme for national secondary roads, launched by the NRA last year.

The authority is allocating over €9 million to local authorities for road safety measures this year. This will allow for accident reduction measures at some 80 locations, as well as 20 traffic calming schemes on the network. As part of its ongoing commitment to improve road safety and to reduce accident fatalities——

Chairman

Would it be possible to circulate the rest of your speech to members of the committee?

Mr. Tobin

Yes, it has been circulated to members.

Chairman

It would take quite some time to read the rest of the script and we are conscious that the meeting started late.

Deputy Boyle

I would like to ask Mr. Tobin about four general matters - the decision-making processes that have informed the national roads programme with particular reference to the 1998 national road needs survey, overruns of cost and time in the implementation of the national roads programme, the cost control management systems operated by the NRA and the intended use by the NRA of PPPs - before I inquire about individual cost overruns.

The number of roads being provided in the national roads programme does not match the level of need in terms of traffic projection mentioned in the 1998 survey. Groups like the Campaign for Sensible Transport have argued that it may be unnecessary to spend the planned €300 million if the proposals in the 1998 report, including the upgrading of existing roads and the construction of bypasses, are accepted. The report's proposals would lead to lower land acquisition costs, for example. I would like to know if the NRA was involved in deciding the roads that should be prioritised for development under the national roads programme. Did the NRA question the decisions that were being made? Did it ask if the new proposals represented an effective use of public money? In the second area——

Chairman

Perhaps Mr. Tobin should respond to the first point.

Deputy Boyle

I wish to speak about four areas, as I have outlined.

Chairman

Perhaps they should be dealt with one at a time.

Mr. Tobin

The national road needs study was carried out and published on behalf of the NRA in 1998. Consultants examined each of the interurban sections of the roads network, in light of the traffic volumes involved, and decided whether those volumes could be catered for adequately by the service in existence at that time. The consultants had to decide at what point it would become necessary to implement improvements to roads that were adequate in 1998. Such improvements were deemed necessary to provide a suitable level of service; for example, an average speed of80 kph, or 50 mph, on interurban routes. The consultants decided on five packages of schemes. The first package related to backlogs - projects which had to be undertaken by 1999 to sustain an appropriate level of service. The other four packages related to projects that needed to be started within five years of the previous package to ensure that the network could continue to deliver a satisfactory level of service. The NRA listed the projects that were under way in 1999, as well as those which were included in the first two packages - backlog and phase one - in the road needs study, as part of its input into the Government's deliberations when producing the national development plan.

The Government was influenced by other players, such as developmental agencies like IDA Ireland, various chambers of commerce and other interest groups, when drawing up the NDP. It decided to increase the standard of road to be provided as part of the major interurban network. The NRA had suggested that we should aim for level of service D - an average speed of 50 mph - but the Government decided that major interurban routes should provide a higher level of service - level C. The NRA did not dispute the Government's decision in that regard. I do not believe it is the duty of semi-State bodies to question Government policy.

A certain amount of negotiation, in terms of the standard we should seek to deliver and the costs that should be associated with that, took place when finalising the road needs study. The committee should bear in mind that a great deal of the background work to the study was done in 1995-96, when the Celtic tiger did not exist. A balancing act was performed and the NRA reached the conclusion, in conjunction with the consultants, that it would be reasonable to opt for level of service D. I stress that the level of service we chose would be at the bottom end of the expectations of our colleagues in other European countries. The cost of delivering that service was as much as one could reasonably expect a Government to meet. The level of service the Government has opted for on the major inter-urban routes is the norm for most of our European counterparts. The service objectives are Government policy and I do not wish to say any more about them.

Deputy Boyle

If brought up to motorway standard, the proposed Waterford-Dublin road would cater to a traffic capacity of 54,000 vehicles per day. The traffic needs survey carried out in 1998 said that by 2019 the maximum traffic load on that road would be 17,000 vehicles per day. What justification is there for the development of a road with a capacity three times higher than will be required in 20 years time?

Mr. Tobin

On the basis of requiring level of service C, the threshold for moving from single to dual carriageway is an annual average daily traffic of 7,700. The Deputy mentioned a figure close to 20,000 vehicles which indicates that something more than a single carriageway is needed. Fundamentally, the authority is in the business of delivering on Government policy and in this instance what is required is a motorway dual-carriageway.

Deputy Boyle

Is Mr. Tobin saying we should take the matter up with someone else?

There have been cost overruns in the national development plan and it is difficult to get clarification of the figures involved. When the NDP was published in 1999, it was estimated that the national roads programme would cost €5.96 billion, but the current level of the programme is €14 billion. Why have those figures increased in such a short time span? It was hoped that the major proportion of the roads programme would be delivered by 2006, but the Minister for Transport has said it will overrun by at least two to three years. The Construction Industry Federation has said that the current level of delivery and expenditure make 2012 a more likely delivery date, which would be a six year overrun. Given that divergence, is it not the case that those costs will overrun further?

As an agency, the NRA has received increased funding year on year, but has failed to stay within its budget. In 2001, the NRA received €800 million, but spent €950 million. In 2002, the authority received €1 billion and spent €1,135 billion, which represents an overspend over the two years of €250 million. It is fair to ask why budget increases are permitted and why extra expenditure is made in spite of them. Why have added moneys been spent?

We are not delivering a national roads system, rather we are providing a radial system for roads to and from Dublin and around it. The spatial division of spending by the NRA does not reflect a national programme. The money is being spent to enhance access from certain areas which have public transport potential, whereas parts of the country without Dublin access or public transport potential receive little or no support.

Mr. Tobin

The programme we are implementing was not devised by the NRA. The national development plan was formulated by Government following widespread consultation with the social partners.

I have outlined what we input into the programme in terms of costs and the basis for that, including ongoing projects which are backlogged or phase 1 projects under the road needs study. In approving and publishing the NDP, considerable additions were made. The NDP requires completion of the major inter-urban network connecting Dublin and the other five cities to motorway or high quality dual-carriageway standard by the end of 2006. That has meant meeting a higher standard in some instances than we estimated for and it has meant undertaking certain works ahead of the schedule we were geared towards in terms of the phase 1 backlog. We have also been required to improve many sections of national primary roads to achieve a satisfactory level of service on 90% of the national primary routes by the end of 2006. We have also been set the task of improving a smaller number of national secondary roads. We estimate that in today's value the cost of the add ons is of the order of €2.5 billion.

In updating the scheme's costs from the road needs study to 1999 prices, it is clear with hindsight that we underestimated inflation. We assumed 3% per annum, which we rounded to 10%, but it now appears that 15% would have been more appropriate. Inflation in 1999 for road and civil engineering contracts generally ran at 15%, which was also the case in 2000. In 2001 inflation was 10%, though it moderated in 2002 and we estimate it now runs at about 5%. The prices quoted in 1999 must be adjusted by 15% plus 15% plus 10% plus 5% to allow one to see how serious additional costs were incurred.

The significant increase in the cost of the Dublin Port tunnel has also had an impact. The project was expanded by Dublin Corporation - now Dublin City Council - and we had to take measures to ensure that the tunnel as built accommodated up-to-date safety requirements. Deputies will be aware of a number of very serious incidents in tunnels throughout Europe in recent years. It behoves us to ensure that our tunnel was state of the art.

Since the publication of the NDP, we have had to add a number of projects on the N4 and N5 while providing for a bypass of Slane and the combined cost of these has been in excess of €200 million. Environmental issues have also added to the cost of schemes. It is acknowledged in the Fitzpatrick report referred to by the Comptroller and Auditor General that the estimates from the road needs study were based on outline sketches of projects. The proposals were not greatly defined and surveying on the ground led to the identification of extra costs.

On the Kildare bypass, environmental concerns regarding Pollardstown fen and the Curragh aquifer necessitated an innovative construction mechanism resulting in significant extra costs. Archaeological issues also affect costs.

On one particular project, a sum in excess of €10 million has already been spent. Such costs are now commonplace. I do not object to them and believe they are required but they do constitute an add-on to the estimated costs of four or five years ago.

Likewise, it is not unusual for people to approach their local representative for additional accommodation works, as those of the members who have attachments to local authorities will know, which also adds to the cost of projects. Obviously these are made on the basis of sound reasons but changes inevitably add to the cost. In some cases, by the time a road project actually begins, its specifications have changed due to increased use and a higher standard of road than that envisaged in the needs study is required.

In summary, there is a combination of factors but the biggest one is the extent of add-ons to the NDP, and more importantly the extent to which inflation has affected the construction industry since the NDP was produced.

Chairman

The Fitzgerald report found that the NDP road infrastructure in the BMW region was only 75% of that budgeted by the end of 2001 and 71% by the end of November 2002. Why has the trend of prioritising projects in the south-east continued in the 2003 allocations? Only €68 million has been allocated to the Connacht region this year.

With regard to the explanation for expenditure increases, I am somewhat amazed that there is no fixed price contract. I would also like to hear Mr. Tobin's opinion on the benchmarking of funding allocation that goes to local authorities.

Mr. Tobin

I repeat the point I made in regard to the spread between the BMW and south-east regions. We were in a particular position when the NDP was published, in that we had a good deal of projects running in the eastern half of the country. It is not that easy to make a sudden shift. When a project is up and running one has to continue with it until completion. We are moving to redress that and although it is taking time, and may take more time, we are conscious of it and committed to redressing the problem.

People tend to look at the disparity in the amount of money going between the two regions. It might be useful to remember that if we build an all-purpose single carriageway road somewhere in the west the cost will be in the region of €4 or €5 million per kilometre, whereas the Dublin Port tunnel is costing €100 million per kilometre. While it is true that a lot of additional money is going to the eastern part of the country, one has to bear in mind that it is not producing enormously additional lengths of road. The cost of such things as the port tunnel tends to skew the balance because it is such an enormously expensive project. Clearly if that money was available to spend in the west it would go further there.

Chairman

The national development plan promotes balanced regional development. If the current level of appropriation of funds is to continue I do not see how the NDP will fulfil its mission. There is no commencement date for any road in the west in the 2003 plan.

Mr. Tobin

I mentioned to the Chairman that there are currently two at the tender stage, one at Bohola and one at Hughestown-Meera. They have gone to tender without commitment to start them but I am quite hopeful that they will be started. The commencement of work on the Monasterevin bypass was signed for last Monday which for the most part is in the BMW region. The Dundalk western bypass which we hope to see up and running this year is also in the BMW region. While the Kilcock-Kinnegad project is only partly in the BMW region it will have an influence on the economy and day to day life of that region.

Chairman

I believe Leitrim, Roscommon, Mayo, Galway and Clare do not have any definite starts on any major projects.

Mr. Tobin

I am not sure that I reached that point in my script since we just agreed to publish it. Sligo and Ennis are receiving very significant allocations this year. In the case of Sligo it is close to €17 million.

Chairman

In 30 years.

Mr. Tobin

I can speak only about this year. The point I wanted to make in response to the Chairman is that both Sligo and Ennis are receiving very significant funding this year. This funding is designed to meet the cost of property acquisition and archaeological works that will be required. The expectation is that once that progresses and it is clear that no major problems will emerge it is our intention to move forward very quickly to tender both of those projects and hopefully see them under construction next year.

Chairman

That is good. I thank Mr. Tobin.

Deputy Ardagh

I congratulate the NRA. The road improvements are very noticeable. The only problem is the number of cars that is on them. Mr. Tobin referred to the fact that a significant delay was due to the refusal of the IFA to allow access during the second half of 2001, which had the effect of delaying 30 projects by between six and nine months. The reason for the IFA stance is that it was looking for increased compensation. What is the average amount per acre paid to farmers for an acre of land compulsorily purchased for road projects?

Mr. Tobin

That is not easy to answer as the value varies from place to place.

Deputy Ardagh

Can Mr. Tobin give me a range?

Mr. Tobin

The bottom value is somewhere in the order of €10,000 or €12,000 per acre.

Deputy Ardagh

What is the top value?

Mr. Tobin

The top can be anywhere. We have paid up to €1 million for land close to urban areas, not necessarily to farmers.

Deputy Ardagh

Are many farmers paid €1 million per acre?

Mr. Tobin

There would not be many farmers involved in cases of land close to urban areas which has development potential. That price per acre is not unheard of and in some cases it would be more.

Deputy Ardagh

One of Mr. Tobin's colleagues has figures. Can he——

Mr. Tobin

Our estimate of the cost of land in the NDP programme would be about €250 million.

Deputy Ardagh

How many acres would that be for?

Mr. Tobin

Some 20,000 acres. I am told that our estimate would have been some £400 million, that is some €500 million. We now expect that to double.

Deputy Ardagh

That it will be €1 billion. For how many acres of land?

Mr. Tobin

The IFA had a figure of 20,000 to 25,000 acres and we would find it hard to disagree with that.

Deputy Ardagh

So the cost is between €40,000 and €50,000 per acre, which is greater now than it was in 2001.

Mr. Tobin

It is about double.

Deputy Ardagh

Is it fair to say that one is now talking about €80,000 per acre?

Mr. Tobin

It would be fair.

Deputy Ardagh

Would that be low?

Mr. Tobin

No. To be fair to everybody there would be many settlements well below that figure but there would also be many considerably above it.

Deputy Ardagh

The farmers whose land is being compulsorily purchased will have their livelihoods affected and the way they farm is being interfered with but the compensation is not bad.

In regard to the cost of motorway and dual carriageway, leaving aside the port tunnel, what was the anticipated cost per kilometre when the plan was started in January 2000 and what is the cost now?

Mr. Tobin

For a kilometre of motorway, it would have been in the order of €5 million then; now it is €10 million.

Deputy Ardagh

The increase was from €5.6 billion to €15.8 billion, which is almost threefold. Is Mr. Tobin saying that the cost of motorway has only doubled?

Mr. Tobin

That is correct.

Deputy Ardagh

Where have the exceptionally strong increases come into play?

Mr. Tobin

I did make the point that apart from increases in the costs of the programme as we put them forward, the programme, which was costed at €5.6 billion and which we immediately acknowledged, underscored this real cost because we failed to appreciate fully the level of inflation that occurred in the years between.

Deputy Ardagh

Was the plan expanded?

Mr. Tobin

Yes, of course. I made the point that in publishing the national development plan the Government decided that all of these major inter-urban routes should be to either motorway or high quality dual carriageway standards, and that they should all be delivered by 2006.

Deputy Ardagh

I am short on time, so I will move on to my final question. The M50 is a project close to my heart because I, unfortunately, spend a lot of time on it. I would prefer to spend less, particularly from the Red Cow roundabout to the toll bridge, where it used to be likeO'Connell Street. The traffic is grinding to a halt there because of the toll bridge and the time it takes to get through. The company operating the toll bridge in conjunction with the local authorities is making a lot of money on it, and I cannot understand why there is not, by this time, an electronic system of tolling whereby the cars should be able to go through at about 50 mph without difficulty. At present a car joining the M50 at the Red Cow roundabout, must travel at a speed of 5 mph or 10 mph, which is ridiculous.

The whole question of public private partnerships arises in relation to this matter, particularly because three more are being entered into immediately and more are in the pipeline. The question of risk is important: how much risk is assumed by the private partner and how much by the public partner and what is the benefit and payment to the private partner and to the public. There is a perception at the moment that benefit from the M50 and the East and West Link bridges is balanced more in favour of the private partner than the public. This is because the number of cars has increased dramatically, far more than was anticipated when the contract was entered into. I wonder why we did not look at the population increase statistics. Why were our demographics not better? Why did we not get a better deal?

I ask the Chairman to request on behalf of the committee that the Comptroller and Auditor General carry out a value for money audit on the East Link and West Link PPP contracts, to find out whether we have obtained and are still obtaining value and also to give the committee a template for the future so that it may measure and examine whether future PPPs are giving good value for money before the ink is dry on the contract.

Chairman

We will go over those proposals again.

Deputy Ardagh

Could the Chair ask the committee later whether it will agree to that proposal?

Chairman

We will put that to the committee before we conclude.

Deputy Ardagh

With regard to PPPs, is the amount being paid by the Government fair for the risk taken by the private partner, or is the private partner getting overcompensated based on the risk it must adopt?

Mr. Tobin

We should make a clear distinction between the West Link, the East Link and what might happen. First of all, the East Link has nothing to do with the NRA. It is a non-national road, a Dublin City Council-private sector concern. Having taken over as the National Roads Authority, we became involved with the West Link. That deal was done a considerable time ago. Back then, anybody who suggested the possibility of more than 80,000 vehicles per day passing a point on a road in west Dublin would have been taken away by guys in white coats.

I want to make a very clear distinction between the deal struck there, the deal we are striking on the Kilcock-Kinnegad project, which we are about to finalise, and others we have in the pipeline. For example, there was no service requirement for the West Link. There was no requirement that A, B or C would be done if the queue got to a certain length, or that enough booths should be provided so that nobody is delayed for more than X minutes in passing through. This is the sort of requirement we are now putting into all our PPPs. They are all subject to a yardstick known as a public sector comparator. Is it better value to do it this way than under traditional procurement? We now have a National Development Finance Agency, which has a role in advising about the appropriateness of the method of financing this type of project. We also have mechanisms built in to ensure there is a cap on the profits that the private sector interest can take from a PPP project. A private sector concern comes in and takes all the construction risks and, arguably, the traffic risks, and a cap is put on the level of gain it can make.

Chairman

What is the return on equity investment? Is it 20% or less?

Mr. Tobin

It is far less than that. I am told it is around 15%.

Chairman

Experience elsewhere has suggested that the private sector would get around 20% to 25%.

Mr. Tobin

No, that is not the case here. I am being shown 10% to 15% on what we are dealing with. Obviously there is——

Chairman

What sort of risk is it taking?

Mr. Tobin

In effect it is taking the entire risk on construction of the project, because once the deal is made our input is capped in terms of a financial contribution and will not vary. This is relevant to comments we had earlier about the extent to which projects will drift in terms of their costs between tender and out-turn. All of that risk is now removed from us.

Chairman

I am just stating that there is a risk.

Mr. Tobin

There is also 30 years of maintenance, which is handed over and is the responsibility of the——

Chairman

But the return does not exceed 15%.

Mr. Tobin

That is correct. There are revenue-sharing mechanisms in place that allow us to take back any excess profit that might emerge.

Deputy Curran

I thank Deputy Boyle, because I know it is not really my place. When we enter PPPs in the future, as Mr. Tobin has implied, we will need a review mechanism to use if the risk varies - in this case, with the West Link, the risk diminished rapidly because of the increase in volume. The second thing I would like, especially since attending a conference with the Chairman, is a mechanism whereby the private element in the PPP would also be subject to the scrutiny of this committee. I know that is not the case at the moment but if, for example, National Toll Roads, which runs the West Link, had been in here before, some of the current backlog would have been addressed from our point of view. It is of concern that when we bring in people like Mr. Tobin to talk about the West Link, he has responsibility for the road approaching it on both sides but not for the middle section, which is run by an organisation to which we have no access. I hope that the private element in the PPPs can become the subject of this committee's scrutiny, as I know is the practice in other countries.

Deputy Ardagh

The value for money audit should help in that regard.

Deputy Curran

Yes.

Mr. Tobin

I repeat the point I made earlier and ask that the Deputies draw a very clear distinction between the West Link and the new PPP projects we are developing. The former is of longstanding - to be fair to those involved, they came along and put up the money to build this project when the State simply was not able to afford it, and they have had a very successful project. We are developing new PPP projects. We hope to sign off on one such project, from Kilcock to Kinnegad, in the next couple of days. There are arrangements to deliver service to the road user and to ensure there are no super-profits available to the operator. There are revenue sharing mechanisms and caps on the extent of profit for the operator.

Each project is subject to public sector comparison. We must be satisfied that the project offers good value to the public purse and so far we are getting good value. I cannot comment on whether the private sector concessionaires will be amenable to appearing before the committee but, as far as we are concerned, and we have taken a great deal of advice in this area, the deals we are striking represent very good value for the public purse.

Deputy Curran

Mr. Tobin said the private sector may not be amenable to appearing before this committee. That should be part of any contract.

Mr. Tobin

It should be borne in mind that some of these companies are non-national. I do not know how practical a proposition that would be.

Deputy Curran

It certainly operates in other countries.

Mr. Tobin

I am reminded that they are, as concessionaires, required to provide any information we want. The committee can rest assured that if this or any other committee of the Houses requires information about how PPP projects and toll concessions are progressing, the volumes using them and the profits that are being made, we will be in a position to provide that information.

Deputy Curran

Is the mechanism for comparison with the public sector available to us?

Mr. Tobin

I can provide the committee with the mechanism that is used but because of the commercial confidentiality involved, I cannot provide the details of individual projects. We can show the committee the methodology used.

Deputy Curran

If we are not supplied with the specific figures, how can the committee determine value for money?

Mr. Tobin

I am not sure I have an answer to that question. Would the Deputy leave it with me so I can consider it?

Deputy Curran

Is it clear from where I am coming?

Mr. Tobin

It is not that I am anxious to hold back any information the Deputy feels he needs, but I must check if we are free because of the commercial nature of the projects.

Deputy Curran

Does the witness appreciate from our side that without the figures we cannot do our job?

Mr. Tobin

I do, absolutely.

Deputy Connaughton

One would imagine that if public money is involved in the contracts, we should be entitled to know the financial implications.

Deputy Ardagh questioned the cost of land. We have been told that there were huge increases in the cost of all projects since 1999, up to 90% on the base line costs. What is the increase in the cost of land acquired by the NRA for road building through the new deal with the farming community? What percentage of the increase has that added to those schemes? I suspect it would be a very small percentage. I know Deputy Ardagh enjoys a great relationship with the farming community. If we are talking about €10,000, that is one-eighth of the cost of an ordinary site in this city. For the majority of farmers the average price per acre, even under the new system, is €20,000.

Mr. Tobin

Traditionally, in rural areas we assumed that land accounted for 9% of project costs. Looking at last year, the figure was around 13%.

Deputy Connaughton

That is a long way from the 60% increase in road building costs since 1999.

Mr. Tobin

I am not disputing that.

Deputy Connaughton

I want to ensure Deputy Ardagh understands that.

Mr. Tobin

There are increases in other areas as well.

Deputy Connaughton

Has there been a change in specifications and, thereby, a change in standards in the proposed new roadways? The land being purchased for new motorway corridors is being narrowed. Is this a major change? The opinion in 1999 from a road safety point of view was that the median was an absolute must. Is this change being made to ensure cheaper construction costs? How does that match up with road safety?

The whole roads programme has been a golden egg for consultants. As a result of the change some of the specifications have to be tweaked because the road is a different size from that worked on by the consultants. Is that another extra cost? Can that be seen in any of the accounts? Extra work must be done.

The Minister for Finance has refused to allow roll-over relief for farmers. Mr. Tobin knows better than most that this was a central part of the deal struck two years ago. Now the Government is welshing on that commitment. What effect will it have on acquisition?

Irrespective of how the figures are massaged - and I am not saying Mr. Tobin is responsible for that because he was given a blueprint by the Government - every time I see extra billions of euro being spent on the Dublin Port tunnel and other useful projects, I know that the day the motorway arrives in Galway city or the bypass goes around Loughrea is postponed by three or four years. If there is to be a spatial strategy to encompass the entire State, will there be an effort to ring-fence a certain amount of money to build the type of roads to which the west is entitled but is not getting? When Mr. Tobin sees an alleged increase on the Kilcock-Enfield road, from €203 million to €289 million, he cannot say it is within the BMW region by talking about Monasterevin and Dundalk. They are as far away from Castlebar and Sligo as Dublin. They are within the commuter belt of Dublin and the huge density of population there that must be looked after. Does the National Roads Authority propose to ring-fence projects so that the west will get something out of this, irrespective of what is needed on the east coast?

Mr. Tobin

We are certainly conscious of the imbalance over recent years between the two regions and are working to address it. However, the Dundalk bypass, for example, is in County Louth and is therefore included, rightly or wrongly, in the BMW region. A project such as Monasterevin, which, for the most part, is in County Laois and therefore part of the BMW region, is very important for parts of that region way beyond County Laois in terms of getting access to Dublin. We expect a CPO to be made this year in order to progress the Loughrea project. The roll-over tax was not part of the deal that was struck with the farmers, and the Deputy asks me a very difficult question, which I am not prepared to answer, in relation to what the Minister for Finance does in his budgets. We will leave that to the Minister.

Returning to the more fundamental question about safety, traditionally there have been two different ways of minimising what we refer to as cross-over accidents. This is where, on a dual carriageway, someone would leave one carriageway, drive right across the other and meet another vehicle approaching at roughly the same speed, thus leading to a very serious accident. One mechanism, employed in the UK and some other countries, was to erect crash barriers - or safety barriers, as we now call them - between the two carriageways. The alternative approach, which we tended to adopt, was to assume that if there was a sufficiently wide median between the two carriageways, drivers straying off one carriageway would have sufficient time to right themselves and stop before reaching the far carriageway, thus avoiding an accident.

Safety barriers are quite unforgiving, and hitting them at the wrong angle or the wrong speed can cause a lot of damage. Whereas, in the past, a 9 metre median would have been regarded as an adequate gap between the two carriageways, with no need for a barrier, the growing consensus in recent years is that a gap of 14 metre or 15 metre is required. We do not have such a gap on any of the roads already built, and it would be expensive to start altering long stretches of road. Thus, it was decided that we should erect barriers instead. Once barriers are erected, the gap between carriageways is clearly no longer needed, with the result that we are, in the case of dual carriageways, currently seeking to buy about 26 metres of land to accommodate that project, as opposed to the 36 metres that would normally be required. This represents a cost reduction of about €2 million to €2.5 million per kilometre.

Deputy Connaughton

What about the specifications having to be redesigned?

Mr. Tobin

There may be some reworking, but we do not see that as a major additional burden or cost. The changes involved will be relatively minor.

Deputy Fleming

I do not expect Mr. Tobin to have an answer available now to the following question, but perhaps he could take note of it and send a reply back to the committee. Appendix one of the report presented to us today lists the schemes that have been completed in the last three years. For 2001, the cost of the southern cross route is listed, understandably, at over €21 million per kilometre. With some other projects down the country, on the other hand, dual carriageways or single carriageways perhaps, costs are down to €2 million per kilometre. I have heard it said that the southern cross route was one of the first projects ever engaged in where the non-construction costs were greater than the construction costs.

Land acquisition is obviously a big factor, and I hate talking in terms of averages because there is no comparison between the cost of land acquisition for this project and those in rural constituencies. What I seek is a breakdown of costs for each project completed in 2001 and 2002, detailing separately the land acquisition costs, consultancy costs, other overheads and construction costs. I am sure the NRA has this information available in its offices. I am sure we will find that in rural areas, land costs sometimes make up about 7% to 9% of the overall project total, whereas in Dublin, they make up 50% of the overall costs.

There is an unfair impression in rural areas that the farmers are getting too much money for land. In terms of the Monasterevin bypass, however, I have heard people talk of a ballpark figure of €45,000 per acre. Most of that bypass is in Laois, which is part of the BMW region. As Mr. Tobin said, there is absolutely no reference to capital gains tax in the agreement between the IFA, the NRA and the Department of the Environment and Local Government.

The NRA's report is excessively critical of farmers and the IFA. They are blamed, in some ways, for holding operations up for six months and, therefore, increasing costs. I see this in the opposite way. Had the Department of the Environment and Local Government and the NRA signed, on day one, the agreement they ultimately signed, the NRA would have saved six months. I blame the other parties, not the farmers, for failing to come much earlier to the agreement they eventually came to. I do not expect the NRA to comment, but I must put the other side of the argument. It took the Government six months longer than was necessary to write the cheque that was required to resolve the situation, and the farmers come in for unfair criticism in the NRA's annual report.

When will the NRA's activities be included under the terms of the Freedom of Information Act 1997? I know this is due to happen shortly. Will we have freedom of information access, through the NRA, to the details of contracts signed under PPPs? I know there might be commercial sensitivities involved, but that mechanism will have to be used if necessary.

Regarding tolls, I understand that, in my own constituency, there are plans to toll the Portlaoise-Castletown road or the Potlaoise-Cullahill road. How many vehicles per day are required, as a rule of thumb, to justify the tolling of a road in economic terms? Is there such a volume of traffic on these two roads? Finally, on pages 101 and 102 of the NRA's annual report that we received the other day, the Portlaoise-Castletown, Portlaoise-Nenagh and Portlaoise-Cullahill roads are listed as dual carriageways. I thought they were motorways. The various documents I have seen up to now have referred to them as motorway rather than dual carriageway projects. Classifying them as dual carriageways rather than motorways would have a dramatic impact, so I seek clarification on the matter.

Mr. Tobin

I reassure the Deputy that if the committee, or anybody else, seeks information on our PPP projects or whatever, there will be no need to exert pressure on the NRA and that the information will be readily available to Members of the Oireachtas and members of the public, subject, of course, to the proviso that, in some instances, some material is commercially sensitive and we are obliged to keep it to ourselves. Regarding the volumes required for a viable PPP project, it is hard to put a definitive figure on it, but somewhere in the order of 12,000 vehicles per day would be seen as an acceptable base figure in the opening year of a project.

I should have responded to an issue raised by Deputy Connaughton. It was perhaps a throwaway comment he made about consultants making a killing. For the vast bulk of the spending by ourselves and local authorities on consultants, payments are made on the basis of fixed, agreed amounts. There is a variability in only about 30% of the fee, which is related to final outturn cost. We are convinced that we are getting reasonably good value and are operating within the parameters on the Department of Finance circulars in this area. If anything is secure, for the most part a very high proportion of those fees are on a fixed basis and will not drift as project value changes.

Deputy Fleming

In relation to Portlaoise and the motorway——

Mr. Tobin

What we will have there, I suspect, is motorway. Either way, it is going to be the motorway or a very high quality dual carriageway which for the motoring public makes no difference. There are niceties in relation to types of vehicles that can use motorways as opposed to all purpose roads. For the general population there is little difference between a high quality dual carriageway and a motorway. On both there is great separation and so on.

Deputy Fleming

What about access, crossroads and so on?

Mr. Tobin

There will be no crossing roads on those regardless of whether they end up as motorway or all purpose. The Deputy can take that for granted.

Deputy McGuinness

I acknowledge the excellent work being done by the NRA on various projects all over the country and, in particular, some of the low cost projects through villages and towns in accommodating traffic calming measures. This has been very successful. I wish to ask a number of questions on one specific project and to make an overall comment on the cost of land.

It is easy to get a sensational headline from talking about the cost of land, particularly, farmland, and the cost of roads but the figures provided do not reflect the amount paid to farmers and landowners in rural Ireland. In cases where projects have changed from one standard to a higher standard and where a greater number of acres are acquired along the route, it often visits devastation on farmers in rural Ireland and farms are crossed to the extent that they are very well divided and sometimes the land cut off is not feasible. If we are rolling out roads for the greater good of the country we should be able to pay the landowners for the land they give. Politicians and others would do well to visit some of these farms to see the cut off to the farmer in terms of his income from the land and the devastation caused to families. Mr. Tobin said the land value at one stage was 9% in the context of the overall contract and now it is 13%. That is an overall national figure. If broken down into the regions what would be the figure?

I wish to refer to the Piltown-Fiddown bypass which is ongoing and is almost a national issue and the Norris case within that which is still unsettled. The report mentions, as did Mr. Callanan, Secretary General of the Department of the Environment and Local Government, that sometimes road cost over-runs are due to remeasurement afterwards or different soil being found underneath as the road construction rolls out. In a project of the size of the Piltown-Fiddown bypass, how can one justify an overspend on that project of 100%? In the context of the roll-out of that scheme, the delivery of a one-car tunnel offers no value for money whatsoever and it looks odd in the context of the scheme as a type of add on to satisfy local community opinion. How does one explain the fact that there are 13 right hand junctions on that particular section of motorway, that it took enormous public debate to add on 13 ghost islands, when compared to the number of accidents which have taken place nationally on right hand turn junctions on the motorways, all of which have been well lit and well marked? However, that community continues to fight for its right in terms of those 13 right hand junctions.

In his report Mr. Callanan said that money might be recouped from the NRA. Surely that is part of the project and should have been factored in in the first place. In costing schemes such as that, how does an engineer or the NRA overlook the cost of those junctions which are vital in a road construction programme in terms of safety? Why is a scheme like that not concluded already? In the letter from Mr. Callanan, I understand that the major issue, which turned out to be an IFA national issue in the Norris case, is still unresolved. The NRA said in the report that in 2001 the IFA struck a new deal. Why can that issue not be taken under that new deal? We are looking at a 100% overrun on that project which is small by comparison with national standards. It is still unresolved in terms of further financial implications for either the NRA or the local council.

In regard to the Kilcullen-Waterford route, the NRA report of the road needs study of 1998 recommended that the road be realigned and that the road from Kilkenny to Waterford required certain works. Suddenly it was completely upgraded at enormous cost. In discussions with the Department on the national development plan surely the NRA would have been consulted and could have flagged that essentially what was required was an upgrading, with specific works to be carried out from Kilkenny to Waterford, which is a particularly bad route. We are still awaiting funding for what is a major project, and hugely different from the original project recommended by the NRA. Anyone driving on the route will say it is the urban centres of both Carlow and Kilkenny that suffer, yet they are not being funded for bypasses.

Recently the NRA announced the provision of €2 million for design and compensation for lands on the Kilkenny ring road but there was no mention of construction, even though the last leg was finished and opened in 1984. In terms of value for money surely the NRA would continue with such projects until completed or look at the overall road from Kilkenny to Waterford and revisit the question of the huge difference in design now as opposed to that suggested in 1998.

On the issue of consultants' fees what is the percentage of costs that go to consultants on each project? As Deputy Connaughton said it appears there is a huge involvement by a wide range of consultants in these projects. When one attends local authority meetings one is outnumbered by the number of consultants who attend to advise and one wonders where they vanish to after the meeting and what they get up, particularly in the context of the Piltown-Fiddown bypass. Given the number of consultants involved in it there should be no problem whatsoever.

What comes under accommodation works? Is there a specific heading within accommodation works beyond which one cannot exceed? In other words, can anything be put under accommodation works to facilitate the funding or completion of the roads? In relation to the roll-over relief, without wishing to tie Mr. Tobin down because it may be a policy issue, and given that it has been removed from farmers, how much will that add to the cost of land? Surely it will become a real issue.

Mr. Tobin

It is difficult to know where to start. Just to repeat on the standard of the Dublin-Waterford route, that is now part of the programme which was provided for in the NDP, approved by Government, following widespread consultation. I am reading that as being Government policy and that is the standard of road that is required to be put in place.

On the Piltown-Fiddown route, the standard of road in place there is in accordance with our normal design requirements. It has been subject to a number of safety audits and so on and as part of that, a number of ghost islands were put in to help improve safety. However, we are satisfied that as it stands, bearing in mind traffic volumes and the extent of turning movements involved, it is to the required standard.

I would like to knock the suggestion that the cost of that project will increase enormously. Before doing that I will give an outline of what is, in effect, the prescribed form of contract - prescribed by the Government contracts committee - for use on civil engineering works such as ours. It is a form of civil engineering contract produced by the Institution of Engineers of Ireland and it is one where risks are shared, some by a contractor and some by the client. The risks that are shared by the client are taken by the client - unforeseen ground conditions, exceptional weather conditions, changes in quantities of work to be done, design changes, risks associated with statutory undertakers and archaeology, changes in legislation and price fluctuation.

If a prescribed form of contract is set up in which a client retains those risks, it does not take rocket science to realise that one will not end up paying the tender price for a job. I make the point that in 1999 inflation was at 15%, in 2000 it was 15% and in 2001 the figure was 10% and without compounding it, that is something like 40% in three years. When that risk is being borne by the client, one must assume that the cost of the job will be more than the tender price. That is the reality of the form of contract which is the norm, the prescribed one, but I hasten to add that we have been looking at other forms of contract. Indeed, we have piloted what we know as a design-build form of contract which has a number of advantages in terms of transferring many of those risks back to the contractor and therefore giving us greater certainty of outturn costs. The results to date are encouraging and our intention is to increasingly use that type of contract.

We have given an input to the sub-group of the Cabinet sub-committee on infrastructure and housing which is currently examining the overall issue of our programme cost, its delivery and the mechanisms used for it. I suspect the issue of form of contract is one on which the sub-committee will make a judgment and some recommendation. The bottom line in all of this is that we are conscious of the fact that we are in charge of the spending of public money, that value for money must be obtained and to try to maximise that value as best we can.

On the particular contract at Piltown-Fiddown, there are significant claims as yet unsettled. These are claims which the contractor clearly perceives as being open to it within the terms of the standard and prescribed form of contract we use. I believe that the client, and ourselves as paymasters, would take a somewhat different view and will contest vigorously the payment of any or all of those claims. It should not be assumed that because a contractor has put forward a claim, all or any of that will be conceded to it.

On the question of compensation for a particular property, I am loath to comment on individual ones but what has happened in a particular instance is that a particular person has opted, as is that individual's right, to refer the case to an arbitrator. That has been done and in the past few days the arbitrator, at a meeting with the legal advisers of both the individual and the local authority involved, indicated that the case has been referred to him and he will deal with it. In reality, therefore, the final deal that will be struck is now out of the hands of both the local authority and ourselves.

The question was asked whether accommodation works were a variable feast and I suppose the short answer is "yes". The underlying principle when property is bought from anybody or, to simplify it, landowners, is that at the end of the day, when all is done, they are left no worse off as a result of that land being taken from them, although there are issues of compensating them for injurious affection. Obviously that would include the value of the land and the loss of value on the remaining land and all of those issues, and part of that would tend to be how the remaining land away from the road will be fenced and so on. Accommodation works would be a moveable feast, therefore, with the intention of leaving the property owner no worse off than they would have been had the road not been put through.

Mention was made of the one car bridge. That bridge was installed essentially as a pedestrian facility.

Deputy McGuinness

On that, the bridge cost in excess of €2 million. At least that is what is noted on some of the figures I saw. It is a one car bridge which does not suit the local community so there is an issue in relation to value for money.

Mr. Tobin

If somebody has costings that put that bridge at €2 million, I would be glad to see them and to put them in the hands of the Comptroller and Auditor General to check them out.

Chairman

From your comments, Mr. Tobin, the client would appear to be taking all of the risk, which is very much the case. It is difficult to get effective value for money and I am glad to hear you are looking at a new form of contract, which would be important also. How do you see the role of the NDFA affecting your operation going forward?

Mr. Tobin

As the law currently stands in its simplistic fashion, we are required to consult it in relation to the financing of all our projects. I am loath to attempt to interpret the law but my expectation would be that, in consultation with it, a code of practice will develop whereby I suspect minor projects will not require to be the subject of a consultation with the NDFA and that there may be some general agreement with it on different types of contracts or financing mechanisms and perhaps on PPP projects it would have a greater involvement in——

Chairman

Paying out money?

Mr. Tobin

Yes, indeed.

Chairman

One final point with regard to the audit of local authorities. Page 25 states that an inquiry was carried out in ten local authorities with regard to their effectiveness and efficiency in the spending of their allocations. Are you happy with that report?

Mr. Tobin

I am indeed. In general we find that local authorities are only too glad to co-operate and ensure that they maintain proper records and that they work in an effective and efficient way. We have to recognise, however, that in some instances issues crop up in the course of those visits which require attention. In some instances we have had to ask for, and have received, refunds from local authorities because they have drawn down money which, strictly speaking, they were not entitled to draw down.

Chairman

The report states that many things were not included in grant claims, road schemes, publicity and information requirements have not been fully adhered to and appropriate documentation to support the amount claimed was not maintained.

Mr. Tobin

Our objective is to ensure that the public funding we allocate to local authorities, and which they in turn pass on to contractors or whomever, is correctly recorded and that there is an audit trail which we, the local government auditors and the auditors who come to us from time to time from European institutions can trace and satisfy themselves that it is all properly accounted for. We now have an internal audit function within the authority and they also visit local authorities to ensure they account for the spend of our money in an adequate and acceptable way.

Chairman

So you have an internal audit that would carry out inhouse inspections of local authorities?

Mr. Tobin

And within the NRA.

Chairman

Yes.

Deputy Boyle

Many of the public private partnerships were dealt with by my colleagues. I do not share Mr. Tobin's optimism on the likely control of costs and the estimates being given. Our experience today with the NRA is that the estimates invariably fail. Dublin Port Tunnel is now estimated at €625 million, €450 million more than was originally suggested in 1996. The N7 from Nenagh to Limerick is now €115 million more than estimated, the N4 from Kilcock to Kinnegad is now €85 million more than estimated, the Glen of the Downs road is €50 million more than estimated and the N7 Kildare bypass is €35 million more than estimated. Most of those figures are from the Fitzpatrick and Associates report from 1996. Given that failure in prognostication on the part of the NRA, Mr. Tobin will excuse me if I am dubious about future projections.

With regard to public private partnerships, Mr. Tobin will be aware of a recently published British Government audit commission report which said that PPPs, or PFIs as they are called in Britain, do not represent good value for money. Will the NRA supply the committee with figures on the cost differential? It will cost more to engage in PPPs. We will make a saving in terms of time. I know of no public private partnership that has not cost more than it would cost by borrowing money directly. It would be an entirely new concept and given the NRA's previous history, I am dubious about them being delivered in any form with the roads programme.

My final points relate to the cost management control which arose out of the Fitzpatrick report. The report made a number of suggestions, many of which were surprising in that they were not already carried out and some of which have been taken up by the NRA. One is the appointment of a cost estimation specialist who is engaging in a six monthly review of projects. Is that enough? The NRA has recently adopted an accrual-based accounting system, which is welcome. As far as I know it is the first agency in the State to adopt such an approach. Would that all agencies and Departments had that approach. It was probably born out of necessity. With an accrual based accounting system the specialist should be able to engage in a monthly review of whether projects are on track.

The Fitzpatrick report claimed, in a mild form, that the necessary structures were not in place as of last year. Is Mr. Tobin confident that suitable changes have been made to counteract that criticism?

Mr. Tobin

The Fitzpatrick report said that getting this programme up and running and operating effectively on the ground has been a major achievement in public administration terms. It said that the contribution of the relevant Departments, the National Roads Authority, the local authorities and the construction industry must be acknowledged. It also says the NRA has a strong project management focus and this emphasis has derived from an earlier consultant's report on its management and procedures. Factors which are within the direct control of the NRA, it says, would appear to be largely well managed and most difficulties arise from external factors and difficulties in managing those. The report said that cost control procedures appear adequate at the level of individual projects and respective matters within the direct control of the project managers.

That report raised issues which we must take seriously and we are doing that. However, it is correct, and I hope people will accept, that the authority has been doing a fair amount and doing that correctly. As I mentioned already, between 1996 when the road needs study prices were calculated and now, there was inflation of 68%. I sincerely hope the cause of that is not laid at the door of the NRA. One could argue that the size of our programme had some impact on bringing about that inflation but I hope we will not be seen as the villain of the piece because there has been 68% inflation in the cost of construction projects since 1996.

One project that Fitzpatrick and Associates examined was the Kilcock/Kinnegad road. It started at €203 million in the road needs study in 1996 prices. Inflated to the 2001 price, according to Fitzpatrick it would be €289 million or an increase of 42%. They recognised that inflation in the period was 37%. That meant, in effect, there was a 5% estimation error, which they would regard as acceptable. With regard to the Nenagh to Limerick project, in some senses I take issue with the Fitzpatrick report or perhaps I am expanding on what it said. That project in 1996 was valued at €121 million in the road needs study. If one forgets about other aspects, which I will mention, and simply inflate the figure for January 2001, it would be €184 million. However, what we now have is a considerably different project from what was priced in the needs study. The needs study did not enter into the concept of a single continuous motorway-dual carriageway from Dublin to Limerick. It did not include, for example, the price of changing what is now the Nenagh bypass or ten kilometres of road from single carriageway to dual carriageway. That is an add-on cost. Our needs study work would not have been aware at the time that, for example, a 325 metre viaduct was needed over the Kilmastulla river valley. It would not have been priced. It would also not have provided for the complex interchanges that are now needed at both ends because it is part of a continuous route from Limerick to Dublin, nor would it have costed the price of toll plazas and so forth, which are costed in the current estimate.

We are not pretending we are perfect. However, there is a danger in just grabbing figures out of the air and putting them forward to say that the NRA has lost the run of itself and does not know what it is doing. Fitzpatrick looked at this in great depth and I presume most people would regard them as independent. They acknowledged that we had made a considerable achievement in getting the programme running and that, in so far as there were issues within our control, we seemed to be managing well.

Deputy Boyle

The 2001 accounts and annual report is singularly lacking in any type of admission from the NRA that it needs to have better accountability for public money. I hope sessions such as this will make the authority more aware that there are concerns about how the money is being spent. The one area of cost management control the Fitzpatrick report mentioned was in relation to the narrow cost benefit analysis the NRA carries out on its road projects. It merely seems to be a cost benefit on the potential traffic usage. There is no questioning of other factors, such the alternative land use of the area or the effect that transferring people who are using different and maybe better forms of transport would have by putting this new infrastructure in place. By carrying out such a narrow cost benefit analysis, the NRA is encouraging the culture whereby we get these exaggerated and wrongly estimated accounts of road projects.

Mr. Tobin

The Deputy is now straying into an area beyond the remit of the National Roads Authority. Ours is a relatively straightforward, single focus organisation. There is a national development plan which requires the implementation of a road programme and we are in the business of implementing it. It is a matter at a different level for somebody to decide whether we should be building roads or rail in an area. We have a programme in the national development plan which is, effectively, Government policy and we are seeking to implement it.

In respect of cost benefit analyses, we have been using the COBA system of cost benefit analysis. It is widely used throughout the world. However, we are conscious of the need to update the parameter values that are used in it and we are undertaking a study this year to do that. Cost benefit is not necessarily the be all and end all. There are other considerations that come into play when we decide what priorities we will assign to roads. There are issues concerning the balance between the south and east regions and the BMW region. I may be open to correction, but if we were to determine our priorities totally in terms of cost benefit, it might be difficulty to get any road built west of the River Shannon. Having said that, we are using COBA, which is a fairly well recognised international methodology for assessing cost benefit. We are also concerned about the parameter values which are currently in use and we are getting a study to update us on that. We are also considering methodologies of factoring in other issues on which it is not easy to place a monetary value, for example, how to gauge the impact on the environment as an element of the decision making process. We need to be careful about getting totally hung up on figures. There are more things to life than cost benefit analysis.

Deputy Boyle

Unfortunately, the raison d'être of the committee is cost benefit.

Chairman

Chapter 5 of the report on the effectiveness of fixed cameras for speed refers to 400 locations where fixed cameras have been in use. What impact has the penalty points system made on this aspect? The report of the high level group, commissioned in 1998, is due to be completed in 2002. Has it been presented?

Mr. Tobin

Some 20 sites in the Louth-Meath area are capable of taking fixed speed cameras. There are a limited number of cameras and they are transferred between the sites. There has been a review of the effectiveness of the initiative the Garda undertook in that area. From memory, it has shown a reduction of approximately 18% in the number of fatalities. The operation is a combination of gardaí working on the ground, traffic cameras and so on.

We have made an input to the high level group on road safety on the general question of fixed speed cameras and it will fall to that group to determine future policy on the issue. I suspect it will involve some mixture of fixed and mobile cameras.

Chairman

It refers to the completion of road accident counter measures at 400 locations.

Mr. Tobin

That does not refer to speed cameras.

Chairman

How effective have they been?

Mr. Tobin

They have been very effective. Speaking from memory, a study of the impact of what we did in 1994 and 1995 showed a rate of return of approximately 600% in the first year. We are in the process of completing one for the next two years, 1995 and 1996, on which we hope to go public in the next few months. undoubtedly, the return on the investment that has been made in those low cost accident remedial measures has been exceedingly high. It has been a very successful measure.

Chairman

I thank Mr. Tobin and his delegation. It has been most beneficial. Perhaps Mr. Purcell would like to comment.

Mr. Purcell

Deputy Boyle is correct to draw attention to the cost benefit aspect because we had some concerns about it in the earlier days of the NRA. We produced a value for money report in March 1999 which focused to a great extent on the way the NRA measured its performance and whether its performance indicators were appropriate. Some of that would have related to the way the internal rate of return was calculated on roads. However, Mr. Tobin rightly says we should not just know the price of everything and the value of nothing. I say that humbly as Comptroller and Auditor General.

The public sector comparitor is a very important aspect of these PPPs and PFIs, although it is not the sole criterion. One of the things we have been doing, not only on the roads issue - a report will be issued tomorrow on a much smaller matter involving a PPP case - is examining public sector comparitors and the way it is calculated. That is very important and it will continue to be a concern of us all.

The role of the National Development Finance Agency is very important. Reference was made to a publication which suggested that PPPs and PFIs are invariably more expensive than the public sector comparitor. However, it is not simply a question of a strict comparison because other matters arise dealing with the transfer of risk, better design and other advantages that must be balanced and included in the equation.

Deputy Ardagh suggested I undertake a value for money review of the West Link and the East Link. In considering whether to do this, I would have to take on board Mr. Tobin's advice to the committee that the East Link is an arrangement between Dublin City Council and other parties. They would not come within my remit. There is a lot of history regarding the first bridge on the West Link. I would see my role as having a function regarding the construction of the second toll bridge and the financial arrangements that have been made.

However, I would like to give further consideration to the matter before responding to a request by the committee because it might be wise to see how the role of the National Development Finance Agency develops. Mr. Tobin pointed out that there is a requirement to consult with the agency. From my recollection of the legislation, that would involve convincing it that the option selected was the most beneficial. That may entail a bigger study in terms of considering how this is being ensured rather than to focus on a PPP route.

We are undertaking some work to get behind some of the figures leading to the so-called cost escalation of the roads programme. I hope to return to the committee on this later this year.

Chairman

I thank Mr. Purcell. The most encouraging news I have heard today is Mr. Tobin's advice that the NRA is considering a new concept of a new contract, where the client will not take all the risk and where the loans will be spread. It will effectively ensure that the value for money aspect will be more effective.

Is it agreed that the accounts are disposed of? Agreed. The committee will meet next week to consider the Department of Social and Family Affairs, Vote 40, Chapter 11.1.

The committee adjourned at 1.50 p.m. until11 a.m. on Thursday, 27 February 2003.